ICAI can proceed against entire CA firm if individual CA cannot be held responsible: Delhi High Court

The Delhi High Court recently ruled that the Disciplinary Committee (DC) of Institute of Chartered Accountants of India (ICAI) can proceed against a firm of Chartered Accounts (CAs) in case one individual cannot be held responsible for the allegations raised in a complaint against the firm [Harinderjit Singh vs Disciplinary Committee Bench III The Institute of Chartered Accountants of India & Anr]..Justice Prathiba M Singh rejected the argument that only those nominated as ‘members concerned’ under Rule 8 of The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules 2007 are answerable to by the ICAI in respect of any complaint alleging misconduct. "The Court has today interpreted Rule 8 of the Rules and has held that when the DC is of the opinion that any one individual cannot be saddled with the responsibility, considering the nature of the allegations, the Disciplinary Committee can proceed against the firm as whole," the judge said in the ruling dated July 3..The Court said the rules make it clear that the notice to the firm is the notice to all the members who are the partners or employees of the firm on the date of registration of the complaint. “The firm can disclose the name of a person who shall be responsible for answering the complaint “provided such a member was associated with the firm either as a partner or employee at the time of the alleged misconduct.” The proviso to Rule 8 (2) makes it clear that if no member owns responsibility in respect of the allegations, then the firm as a whole shall be responsible,” it added..The Court further said that ICAI is fully empowered to take action against a firm and issue notices even to the firm.It explained that where allegations are in respect of agreements made by the firm, only an individual may not be responsible.“In a case where there is any complaint or allegation in respect of a single incident or an act of a member, the firm can designate that particular person, who was associated with the said act, which is alleged to be misconduct. The position would however not be the same, say, in a case where the allegations are in respect of arrangements entered into by firms with other international counterparts, spanning over decades and multiple agreements. A single individual cannot be pinned down in such situations to be responsible for answering the complaint as ‘member answerable’. The firm as a whole has to be held responsible if found culpable, in such circumstances, failing which the Act would be rendered toothless,” the Court stated. The Court also observed that if ICAI’s DC is of the opinion that a member is incorrectly owning responsibility for allegations which are wide ranging, the statutory body is fully empowered to hold the firm as a whole as being responsible..It was hearing a batch of 10 petitions moved by various CAs of different firms against the disciplinary proceedings pending against them before the ICAI. The Court turned down their argument that since they were not the ‘members concerned’ or ‘members answerable’, they be discharged from the proceedings. Dismissing the petitions, the Court imposed a cost of ₹1 lakh each on the petitioners. “The petitioners including their firms are given an opportunity to file a reply to the notices issued by ICAI and a date of hearing be fixed for their appearance. The petitioners and their firms are free to file their written statements within eight weeks before the DC. The DC shall, after giving a hearing to the petitioners and their firms, shall proceed further with the enquiry against the firms and the petitioners in accordance with law,” it ordered..The Court highlighted the need to enhance and strengthen the disciplinary mechanisms against firms and also their accountability and transparency.The profession of Chartered Accountancy is one which forms an important and critical part of the economy of a country, the Court said.“Any omission or laxity in discharge of duties could lead to large scale losses and financial frauds. CAs owe a responsibility not just to their clients but also to ensure, in the process of rendering their services, that there is compliance of law. The said profession also owes a duty to the country as also to the economy as a whole. Thus, regulation of the profession of CAs by establishment of the Regulatory body like the ICAI is an important feature of the said profession itself,” it added..It also said that if firms are permitted to only pin down one single individual in respect of alleged misconduct spanning over decades, the entire purpose of Chartered Accountants Act and Rules would be completely defeated. The Court further said there is an imminent need to do the following:- strengthen the ICAI by expeditiously notifying the amendments passed by the Amendment Act of 2022;- undertake a consultation in order to clearly set out as the framework in which multinational accounting firms, can operate. "Such firms also contribute in bringing global best practices to India with immense opportunities for youngsters. They also render services to Indian businesses even at a global scale. Thus, the provisions relating to licensing agreements, brand usage etc., also need to be looked into," the Court said..Senior Advocates Sudhir Makkar and Saurabh Kripal with advocates Allwyn Noronha, Kamal Shankar, Gautam Verma, Atul N and Arjun Narang represented the petitioners.Senior Advocate Ramji Srinivasan and advocates . Pooja M Saigal, Nikhil Sabri, Nipun Gupta and Namrata represented the ICAI..[Read Judgment]